Buyers Group – How It Works
A common way to purchase an apartment in Israel is with a buyers group or “Kvutzat Rechisha”. When you join a buyers group, you are buying the land with a group of people, at a government land auction. The organizers of the buyers group will consist of the Project Manager, a Lawyer, an Architect, and the Realtor, Yigal Realty.
Stage 1: Before the buyers group is arranged, Yigal Realty will work with the Project Manager and Architect to create an attractive building plan. Once the floor plans are drawn and the costs are determined to be significantly cheaper than current market values, the realtor will start marketing the project to potential buyers.
Stage 2: Buyers & Investors who are interested in joining the group will sign a partnership agreement which states that you the buyer, along with the other members of the group are interested in purchasing the land from the government. The buyer pays 100,000 NIS (150,000 – for apartments over 2 million) as a non refundable down payment and the money goes into an escrow account. In the event that the group does not win the government auction, the down payment is returned to the buyer.
Stage 3: Government Land Auction. The lawyer for the buyers group will submit the bid to Israel Lands Authority (ILA). Once the bid is submitted, it will take anywhere from two weeks to couple of months for the auction results to be published. As mentioned above, if the buyers group bid is too low and does not win the auction, the down payment gets returned.
Stage 4: Winning the Land Auction. Once the results are in, and the buyers group has won the bid, we will need to pay the Israel Lands Authority for the purchase of the land. We require the buyers to submit a total payment of 40% within 45 days of the auction results. (Within 10 days, the total payment needs to be 15%, within 45days the total payments will be 40%). There will be an option to finance to help get more time to organize the down payment up to 40%.
Stage 5: After the payment has been made to the ILA, the project manager starts the planning & permit process. This takes about one year, (from the time we win the bid) during which time he will work with the architect, general and sub contractors, government agencies, and banks.
Stage 6: Once the building permit is received, we will need the remaining 60% of the purchase price to be paid out as construction progresses (approximately two years). The group manager negotiates with the projects banker for a group mortgage. All members will need to be approved by the bank for this mortgage. Although a buyer has the option of not utilizing the bank mortgage, by having a mortgage in place, it protects the entire group from a buyer who cannot pay when money is needed for construction.
Additional costs that buyers are responsible for are: Lawyer Fee’s 1.3% plus VAT, Realtor Fee’s 2% plus VAT, and Mas Rechisha (Purchase Tax) Etc.
One of the advantages in a buyers group is that the Purchase Tax is calculated only on the cost of the land, instead of the price of the unit. For example: a house that is purchased from a developer, at the price of 2,000,000 will be taxed 8%, which is 160,000. A house for the same price that is purchased via a buyers group, will only be charged 6% of the cost of the land (give or take 30 – 35K).